I’ve just finished running our Winning Margin Manufacturing Awareness course with a group of people involved largely in sustainability and net zero. During the course we introduce the option to invest for sustainability and to enable the business to move toward a net zero goal. At the end of the course, if I have done my job half well, the delegates realise why profitability is the only way to drive net zero.
At the beginning of the simulation delegates have a factory which is typical of so many we see. A mixture of efficient and productive modern equipment and processes with a low carbon footprint mixed with less good areas with higher carbon footprints. Delegates have to run their factory over a three years period taking into account such things as cash flow, profitability, growth, capital investment, sustainability, new product development and supply chain development. In order to run the company successfully they need to take all of these into consideration.
I don’t want to spoil the course for those of you who will be doing it in the future but, just like in real life, it is very difficult to achieve success in all of these areas. Just like in real life some decisions (particularly those affecting long term investment in a move to net zero) conflict with the short term profitability, cash flow and survival of the business.
What is really interesting is that once the delegates take “ownership” of the company their priorities change. One group last week who are involved in sustainability on a day to day business refused point blank to invest in the machine that would have the biggest positive effect on moving the company toward net zero as the short / medium term negative consequences on profitability and cash flow for the company were not good. Even when offered the opportunity of a grant and to borrow the rest of the money unsecured and at reasonable interest rates with no risk of the company going under due to guaranteed ongoing bank support they still took the less sustainable offer.
There is a lesson here and it’s an important one. If we genuinely want to move toward net zero in manufacturing, agriculture and also services we have to make it more profitable to go down the sustainable route than the less sustainable one. You can’t achieve this by simply putting up the price of the less sustainable way. We’ve seen that recently with the increase in energy prices. All you do is cause chaos and in the end have to subsidise. This has been the case with agriculture for years and I don’t think anyone is claiming environmental success there.
If government and companies are serious about going down the sustainable and net zero route then that has to be the most profitable way for both business and individuals.
I know some people will accuse me of taking a nasty capitalist view of this but the fact is that when the chips are down, apart from a few very idealistic individuals we all take the route that preserves or increases our current income levels and / or short term survival. The answer to net zero and sustainability is out there but we need to address the real long term problem of investment and short term grants. A few bob to instal a heat pump and an appeal to our better nature won’t do it. What will work is sustainable, net zero profitability.
If you want to discuss how we can help with your business, or if you are environment / net zero advisors or policy makers then please Contact us and we will be happy to discuss things in more depth and / or run a net zero version of Winning Margin for your organisation.